LOS ANGELES, July 29, 2004 (PRIMEZONE) -- Northrop Grumman Corporation (NYSE:NOC) reported that second quarter 2004 income from continuing operations rose 40 percent to $289 million, or $0.79 per diluted share, compared with $207 million, or $0.55 per diluted share, for the same period of 2003. The increase reflects higher sales and operating margin, as well as a lower tax rate than in the second quarter of 2003. Sales for the second quarter of 2004 increased 11 percent to $7.4 billion from $6.6 billion for the same period of 2003.

"These results reinforce Northrop Grumman's record of solid sales and earnings growth and demonstrate our ability to consistently deliver strong financial performance," said Ronald D. Sugar, chairman, chief executive officer and president. "Based on the strength of year-to-date results, we now expect 2004 sales to increase to around $29 billion, earnings per share from continuing operations to grow to between $2.90 and $3.00, and net cash provided by operations to be about $1.7 billion."

Operating margin for the 2004 second quarter increased 24 percent to $483 million from $391 million in the same period a year ago. Second quarter 2004 operating margin includes lower pension expense and higher unallocated corporate expenses than in the second quarter of 2003, as well as the effect of a $60 million pre-tax charge for increased projected costs for the F-16 Block 60 fixed-price development combat avionics program reported in the Electronic Systems segment.

Second quarter 2004 pension expense, as determined in accordance with accounting principles generally accepted in the United States, declined to $86 million from $140 million in the second quarter of 2003. Pension expense allocated to contracts pursuant to U.S. Government Cost Accounting Standards (CAS) increased operating margin by $77 million in the second quarter of 2004 and $66 million for the comparable 2003 period.

Unallocated corporate expenses were $53 million in the second quarter of 2004 compared with $22 million in the second quarter of 2003. The $31 million increase in unallocated corporate expenses was primarily due to higher mark-to-market stock compensation expense and deferred state income taxes.

The effective tax rate applied to income from continuing operations for the 2004 second quarter was 26 percent compared with 31 percent in the 2003 second quarter. During the second quarter of 2004, the company completed studies and recognized additional tax credits of $31 million related to research and development and export sales activities for the years 1997 through 2003.

Net income for the 2004 second quarter was $295 million, or $0.81 per diluted share, compared with $205 million, or $0.54 per diluted share for the same period of 2003.

Contract acquisitions were $5.3 billion in the second quarter of 2004 compared with $5.2 billion for the same period of 2003. Total funded backlog was $26.2 billion at June 30, 2004, compared with $26.9 billion at Dec. 31, 2003. Total backlog, which includes funded backlog and firm orders for which funding is not currently contractually obligated by the customer, was $57.2 billion at June 30, 2004, compared with $58.2 billion at Dec. 31, 2003.

2004 Guidance

The company expects 2004 sales of approximately $29 billion versus previous guidance of approximately $28 billion. Earnings per share from continuing operations are now expected to range between $2.90 and $3.00 versus previous guidance of between $2.80 and $2.95. Net cash provided by operating activities is expected to be approximately $1.7 billion in 2004, versus the prior estimate of approximately $1.5 billion.

Electronic Systems second quarter 2004 sales increased 5 percent from the second quarter of 2003 due to revenue increases in Government Systems and Defensive Systems. Sales in Government Systems rose 72 percent, primarily due to higher sales to the U.S. Postal Service. Defensive Systems revenue increased 39 percent reflecting increased sales of infrared countermeasures for military helicopters, LITENING targeting pods, and test equipment. These sales increases were partially offset by lower sales in Aerospace Systems and Space Systems. Second quarter 2004 operating margin declined 7 percent due to a $60 million pre-tax charge for increased projected costs for the F-16 Block 60 fixed-price development combat avionics program. The principal portion of the charge reflects a higher estimate to complete qualification and production of the "Falcon Edge" electronic warfare suite. The impact of the charge was partially offset by improved performance and contract close-outs for several programs in the Navigation Systems, Defensive Systems, Aerospace Systems, and Government Systems business areas.

Ships 2004 second quarter sales, which include the financial results of the Newport News and Ship Systems sectors, increased 14 percent compared with the 2003 second quarter, driven by higher sales in Surface Combatants, Amphibious & Auxiliary, and Submarines, which were partially offset by a decline in revenue in Aircraft Carriers. Surface Combatants sales rose 38 percent, primarily due to higher DD(X) program revenue. Amphibious & Auxiliary revenue rose 31 percent due to higher revenue in the LPD-17 and LHD-8 programs. Operating margin for the 2004 second quarter increased more than fourfold compared with the 2003 second quarter due to a $68 million pre-tax charge for the commercial Polar Tanker program recorded in the second quarter of 2003.

Information Technology second quarter 2004 sales increased 9 percent due to higher revenue in Government Information Technology and Enterprise Information Technology. Government Information Technology revenue increased 13 percent, primarily due to new business awards and organic sales growth in existing programs. Enterprise Information Technology increased 12 percent, primarily due to expanded opportunities for product and service sales with civil agencies. Second quarter 2004 operating margin increased 18 percent, as compared with the second quarter of 2003, primarily due to higher revenue in Government Information Technology and Enterprise Information Technology and improved program performance in Commercial Information Technology.

Integrated Systems sales for the second quarter of 2004 increased 13 percent over the second quarter of 2003, primarily due to higher sales in Airborne Early Warning/Electronic Warfare Systems and Air Combat Systems. Airborne Early Warning/Electronic Warfare Systems revenue increased 28 percent due to higher volume in the E-2 Advanced Hawkeye and EA-6B programs. Air Combat Systems revenue increased 8 percent due to higher volume in the F-35, Global Hawk, and Multi-Platform Radar Technology Insertion programs. Operating margin for the second quarter of 2004 declined 27 percent reflecting the segment's changing business mix, which includes a greater proportion of lower margin development programs, including F-35, Global Hawk, E-2 Advanced Hawkeye, and the E-10A.

Northrop Grumman's total debt was $5.8 billion at June 30, 2004, compared with $5.9 billion at Dec. 31, 2003. Interest expense for the second quarter of 2004 declined to $112 million from $119 million for the 2003 second quarter as a result of a reduction in fixed-rate debt acquired with the acquisition of TRW Inc. Second quarter 2004 interest expense also includes the impact of the adoption of Statement of Financial Accounting Standards No. 150 -- Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which was adopted on July 1, 2003, and required $6 million of dividends payable on mandatorily redeemable preferred stock for the quarter to be classified as interest expense.

Net cash provided by operating activities for the 2004 second quarter decreased to $610 million versus net cash provided by operating activities of $737 million for the second quarter of 2003. The decrease was primarily due to higher tax payments in the second quarter of 2004 compared with the second quarter of 2003.

During the second quarter of 2004, the company repurchased approximately 2.4 million shares of its common stock at an average price of $49.92 per share, after giving effect for the 2-for-1 stock split, in the form of a stock dividend, effective June 21, 2004. Since the Aug. 20, 2003, announcement of a plan to repurchase up to $700 million of Northrop Grumman common stock, the company has repurchased approximately 10.4 million shares at an average price of $47.50.

About Northrop Grumman

Northrop Grumman Corporation is a global defense company headquartered in Los Angeles, Calif. Northrop Grumman provides a broad array of technologically advanced, innovative products, services and solutions in systems integration, defense electronics, information technology, advanced aircraft, shipbuilding and space technology. The company has 125,000 employees and operates in all 50 states and 25 countries and serves U.S. and international military, government and commercial customers.

Certain statements and assumptions in this release contain or are based on "forward-looking" information (that Northrop Grumman believes to be within the definition in the Private Securities Litigation Reform Act of 1995) and involve risks and uncertainties, and include, among others, statements in the future tense, and all statements accompanied by terms such as "project," "expect," "estimate," "assume," "guidance" or variations thereof. This information reflects the company's best estimates when made, but the company expressly disclaims any duty to update this information if new data becomes available or estimates change after the date of this release.

Such "forward-looking" information includes, among other things, projected deliveries, expected funding for various programs, future effective income tax rates, financial guidance regarding sales, segment operating margin, pension expense, employer contributions under pension plans and medical and life benefits plans, and cash flow, and is subject to numerous assumptions and uncertainties, many of which are outside Northrop Grumman's control. These include Northrop Grumman's assumptions with respect to future revenues, expected program performance and cash flows, returns on pension plan assets and variability of pension actuarial and related assumptions, the outcome of litigation and appeals, environmental remediation, divestitures of businesses, successful reduction of debt, successful negotiation of contracts with labor unions, effective tax rates and timing and amounts of tax payments, and anticipated costs of capital investments, among other things. Northrop Grumman's operations are subject to various additional risks and uncertainties resulting from its position as a supplier, either directly or as subcontractor or team member, to the U.S. Government and its agencies as well as to foreign governments and agencies; actual outcomes are dependent upon various factors, including, without limitation, Northrop Grumman's successful performance of internal plans; government customers' budgetary constraints; customer changes in short-range and long-range plans; domestic and international competition in both the defense and commercial areas; product performance; continued development and acceptance of new products and, in connection with any fixed price development programs, controlling cost growth in meeting production specifications and delivery rates; performance issues with key suppliers and subcontractors; government import and export policies; acquisition or termination of government contracts; the outcome of political and legal processes; natural disasters and terrorist acts; legal, financial, and governmental risks related to international transactions and global needs for military aircraft, military and civilian electronic systems and support, information technology, naval vessels, space systems and related technologies, as well as other economic, political and technological risks and uncertainties and other risk factors set out in Northrop Grumman's filings from time to time with the Securities and Exchange Commission, including, without limitation, Northrop Grumman reports on Form 10-K and Form 10-Q.

Northrop Grumman will webcast its security analyst conference call at 12 p.m. EDT on July 29, 2004. A live audio broadcast of the conference call along with a supplemental presentation will be available on the investor relations page of the company's Web site at
http://www.northropgrumman.com
.